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Yes, employers can still have unpaid interns (under the right circumstances)
BlogWage & Hour Insights

In the past, we’ve explained the DOL’s test for whether employers must pay their interns. Put simply, public employers and qualifying not-for-profit entities do not have to pay their interns. I hope that our more recent discussions of lawsuits that demonstrate the ever-narrowing segment of lawful unpaid internships have spurred some discussions and re-examination among readers of this blog who have internship programs. Judging by some of the calls and e-mails we have received since then, employers have begun seriously considering whether those unpaid internships are really free labor. However, hope is not lost—it is still possible to have unpaid interns under the right circumstances, as one recent New Jersey case demonstrated.

In this case, a beauty school student sued the for-profit beauty school under the FLSA for alleged unpaid wages she earned while providing services to paying customers at the beauty school. The student claimed that these services, along with cleaning duties and paperwork she completed, were essential to the beauty school’s operation. Because the duties were essential, the student claimed that she and other students qualified as “employees” under the FLSA and should have been paid at least the minimum wage for this “work.”

The beauty school countered that the services, clerical, and janitorial functions were simply required clinical work that the student had to complete to qualify for a cosmetology license in New Jersey. Under state law, an individual who wants a cosmetology license must attend a licensed beauty school and work a certain amount of hours in a clinical setting. In this clinical setting, members of the general public receive cosmetology services from registered students for a fee. According to the school, this fee covers the cost of materials used in the services, and is less than the market rate for such services. In return for providing the services, school students receive credit toward graduation and the clinical portion of the cosmetology license prerequisites.

The student claimed that she was an employee under the FLSA because the school operated as a for-profit business and actually profited from the services that she and other students provided, and because the school was the primary beneficiary of her “work.” However, the student’s first argument misstated the “economic realities” test, and the second was not persuasive in a clinical training session.

As the court found, the “profitability” of services or businesses alone does not dictate whether an employment relationship exists. The fact that the school also benefitted from the clinical work, and even the ancillary cleaning and clerical services, did not sway the court, either. As the court observed, the entire point of the clinical training portion of the school was to imitate the conditions in an actual salon, where students would have to provide services, clean, and do paperwork. Indeed, the supervised clinical program not only provided necessarily skills and experience, but was a requirement of licensure. In other words, the student could not provide cosmetology services without first completing this required clinical work per state law, not at the whim of the beauty school.

Other factors weighed against the student as well. The clinical work did not provide students with a livelihood. They trained at the school with the understanding that the clinical program had a definite end date with no continued employment. In reality, the court held, students at the beauty school were just that: students gaining professional clinical skills to meet a statutory requirement.

New school semesters start soon, which often means a new crop of interns. Even with this favorable outcome, given the continued focus by the DOL on unpaid internships, you should carefully review your unpaid internship or other clinical programs to ensure that they meet the FLSA’s requirements. As this case demonstrates, a clinical program (even ones not mandated by state law like this one) is most certainly going to be viewed differently than an everyday “office” internship.